Stocks to Buy as USDA Sees Lower Corn, Soybean Yield

Posted by Ian Cooper - Tuesday, November 9th, 2010

From Barron's:

"Shares of ag stocks are getting a little bounce this morning following some sharp cuts in estimates of U.S. and global corn and soybean supply in the latest report by the U.S. Department of Agriculture.

Shares of fertilizer makes Potash (POT), Mosaic (MOS), and Intrepid Potash (IPI) are up 1.6%, 3%, and 2%, respectively. Monsanto (MON) shares are up 89 cents, or 1.4%, at $63.19.

Lower yield in bushels per acre will crimp U.S. corn production this year, while soybean production estimates were also revised lower, while exports from the U.S. were revised upward based on rising global demand."

Here's more on the U.S. Department of Agriculture report.

And here's what Bloomberg had to say:

"The U.S. corn crop will be 1 percent smaller than forecast a month ago, the government said, after flooding in June and hot, dry weather in August cut Midwest yields for a third straight month.

Production will total 12.54 billion bushels, down from 12.664 billion projected a month ago and less than last year’s record 13.11 billion, the U.S. Department of Agriculture said today in a report. The average estimate of 34 analysts surveyed by Bloomberg News was for 12.542 billion bushels.

“The hot weather and flooding resulted in lower yields,” Alan Brugler, the president of Brugler Marketing & Management Inc. in Omaha, Nebraska, said before the report. “We have yet to see a reduction in corn demand. We will have to see a slowdown in demand.”

The report was released before the start of trading on the Chicago Board of Trade, where corn futures for March delivery fell 2.5 cents, or 0.4 percent, to $5.9925 a bushel yesterday. The most-active contract has surged 60 percent since June 30 as adverse weather damaged crops.

Today’s estimate is the fourth for this year’s crop based on farmer questionnaires and a USDA survey of about 1,900 fields in the Midwest.

Reduced supplies of corn may increase expenses for meat companies such as Tyson Foods Inc. and Smithfield Foods Inc. Makers of corn-based ethanol such as Valero Energy Corp., Poet LLC and Archer Daniels Midland Co. may see margins squeezed.

Rain, Heat

Parts of the Midwest received the most rain in June since 1960, damaging root development and yield potential, said Mike Tannura, the president of T-Storm Weather LLC in Chicago. In July and August, temperatures in Iowa, Illinois and Indiana were the fifth-warmest since 1960, restricting movement of sugars and starch into kernels, he said.

“Corn yields usually suffer when it’s too hot,” Brugler of Brugler Marketing said. “We will not solve the supply problem until next year’s harvest.”

The USDA cut its yield forecast to 154.3 bushels per acre from 155.8 bushels last month. Analysts expected 154.5 bushels, on average. Last year, yields were a record 164.7 bushels.

Farmers will harvest 81.263 million acres this year, the USDA predicted, unchanged from a month ago.

Unsold U.S. supplies on Sept. 1, before next year’s harvest, will total 827 million bushels, compared with the month-ago forecast of 902 million and 1.708 billion a year earlier, the USDA said. Analysts expected 831 million bushels.

World Production

World production in the year that began Oct. 1 will be 818.52 million metric tons, down from the month-ago forecast for 819.65 million.

Production in China, the biggest producer and consumer after the U.S., will total 168 million tons, up from 166 million forecast last month and up from 158 million last year, the USDA said.

Inventories before next year’s Northern Hemisphere harvests will total 129.16 million tons, down from 132.36 million predicted a month ago, and less than the 147.95 million tons estimated for a year earlier, the USDA said. Analysts expected 130.25 million."

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